ETFs are ideal building blocks for low-cost multi-asset solutions, according to a note by Marzena Hofrichter, portfolio manager at Franklin Templeton Investment Solutions and Jason Xavier, head of EMEA ETF capital markets at Franklin Templeton.
Hofrichter added that at as a component in actively managed portfolios, ETFs can currently provide an efficient solution for "diversified and dynamic" portfolios, especially when market conditions make consistent alpha generation difficult or return targets outperform the market.
As a result, ETFs can be used for tactical exposure on the one hand, but also for broad exposure to an asset class.
Xavier said: “ETFs are often ideal building blocks for low-cost multi-asset solutions. In addition, ETFs can be used to better manage ESG mandates, especially in efficient markets.
“In addition to their cost efficiency, ETFs are very easy to trade. In bonds, ETFs can help quite efficiently through volatile periods, as was the case in the Covid-19 pandemic, for example. Both passive and active bond ETFs can provide mark-to-market valuations and real-time information on what is happening in the underlying bond market.
“This is a good example of how ETFs can be used as a liquidity component or price discovery barometer within fixed income.”
